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Blog » Personal Finance » California Freelancing: How AB5 can change the freelancing game?

California Freelancing: How AB5 can change the freelancing game?

Posted on August 1st, 2023
freelance work

The gig economy is booming, and there’s no denying that traditional workers are inching toward this independent lifestyle. Being a freelancer or independent worker, you love celebrating your free-flowing income and self-regulated work schedule. Thanks to the internet, the gig economy holds plenty of promise for freelancers and contractors.

Well, changes in federal or state laws have their respective implications on the country’s workforce, and freelancers aren’t shielded from this impact. The AB5 Law, introduced in California in 2020, further complicates the association between freelancers or gig workers and their clients.

What is the AB5 bill?

Also referred to as the gig worker bill, Assembly Bill 5 closely defines how businesses should classify their workforce as freelancers or employees. The prime intention of AB5 was to empower freelancers with more rights. The bill wanted companies to reclassify freelancers based on the nature of their work. The concept was to provide the workforce of businesses such as Instacart or Lyft with better access to the minimum wage requirements and protections and uphold other workers’ rights.

However, not everything that legislators plan works out to perfection. Although AB5 intended to uphold the interest of the gig workers, creative freelancers working in California faced certain unintended consequences. For instance, Vox Media, a NY-based company, discontinued contracts with hundreds of freelance journalists. The company wasn’t sure whether or not they could adhere to the terms of the new law.

Understanding the gig worker bill of California

As a freelancer or a part of the gig economy, you might have plenty of questions about how the AB5 bill will influence the freelancing game. Even if you aren’t a freelancer but a California-based company hiring freelancers, you would feel the impact.

The AB5 bill establishes a three-part mechanism through which companies must test whether they use their workforce as employees or freelancers. The concerned worker needs to fulfill all three conditions below to be considered a freelancer. Otherwise, the business has to consider the individual as an employee.

  • The worker reserves the right to deliver services without the company’s direction or control.
  • The worker lies outside the usual course of business activities of the company and carries out the assigned work tasks
  • Customarily, the worker must be engaged in a business, occupation, or an independently established trade of the same type.

As per the implications of AB5, most freelance writers and designers need to fulfill these conditions to retain their status as independent contractors. 

However, media businesses encounter a hurdle with the second clause. Suppose a freelance content writer crafts blogs for a landscaping company. However, writing blogs doesn’t come under the ambit of the business. Therefore, the freelancer would be exempt under ordinary circumstances. 

However, suppose the landscaping company hires the writer to develop stories for a landscaping magazine. In that case, they must classify the freelancer as an employee, as story writing is common for magazines.

Who is excluded from the AB5 bill?

The AB5 law mentioned more than 100 professionals that would be excluded from the implications of the new norms. This list included dentists, doctors, insurance agents, real estate agents, accountants, doctors, hair stylists, architects, engineers, marketing professionals, travel agents, and photographers, among others.

However, the law states that freelance writers and creative professionals need to submit at least 35 articles to a company or single client per year to get employee status. This has sparked widespread debate among gig workers. This submission criterion has led to outrage as well as a legal protest from freelance writers. They consider the rule to be unfair and a threat to their livelihood.

The introduction of AB2257 and Proposition 22

Freelance business owners, groups, and independent contractors appealed to get into the list of exemptions. They feared that they would lose clients since businesses would be reluctant to hire freelancers. Besides, many independent workers wouldn’t like to get the ‘employee’ status and limit their opportunities.

Besides, many businesses heavily relying on freelancers or gig workers tried to obtain an exemption status. This way, they could continue working in the usual manner. After a long-drawn appeal and several lawsuits, the AB5 exemption list was updated. Consequently, freelancers should be aware of AB2257 and Proposition 22.

AB2257

AB2257 is one of the most famous modifications of the bill—this empowered freelancers with the freedom to create. CA Governor Gavin Newsom signed this bill on 4th September 2020. This update added lots of exemptions for freelancers to the bill. This also included creative professionals like photographers, videographers, writers, illustrators, photo editors, and cartoonists.

Besides, AB2257 eliminated some criteria that were previously mentioned to become eligible as a creative freelancer, such as the 35-piece content submission per year criteria.

After passing AB2257, as many as 109 worker categories no longer had to appear for the test to be considered freelancers or independent contractors.

Proposition 22

Many big companies hiring gig workers, such as Lyft or Uber, weren’t happy with AB5. The new law required them to consider drivers as employees. This implied that the companies had to provide a comprehensive range of benefits to gig workers that only employees should be getting. Therefore, these companies wanted gig drivers to be exempted from AB5. They also demonstrated to the public that the law would increase transportation prices. This explains the background of Proposition 22. 

Proposition 22 was yet another update to the AB5, made in November 2020. California voters passed this proposition to empower gig workers. Efforts were reversed so that gig workers wouldn’t be considered employees. A large section of gig workers voted for the Proposition since they feared losing contracts if a company hired them as an employee.

The Proposition assured that gig workers would continue to enjoy some benefits like health insurance subsidies, guaranteed minimum hourly wage, and disability and medical coverage.

How can AB5 benefit freelancers?

Now that AB5 has overcome the initial opposition through amendments and updates, it holds tons of promise for freelancers and gig workers. Following the policy reforms, these independent professionals are better poised to enjoy their job security.

A sizable section of gig workers and independent contractors will gain access to similar rights as long-term employees. Besides, individuals in some professions would also get a guarantee of minimum wage rates.

Let’s look at what AB5 has in store for freelancers and independent workers.

  • Guarantee for minimum wage
  • Overtime pay
  • Family leave
  • Sick leave
  • Workers comp
  • Disability insurance
  • Unemployment insurance
  • Social security benefits
  • Sexual harassment protection
  • Medicare benefits
  • Other workplace discrimination protection

As these benefits look great from the perspective of gig workers and freelancers, other states are looking forward to following suit.

How important is AB5 for the US economy?

With more workers switching to the gig economy and freelancing, AB5 is likely to significantly impact employment trends and the country’s economy. A survey reveals that by 2027, freelancers are likely to constitute the majority of the US workforce. Evidently, the gig economy is likely to grow, as evident from these figures.

  • The last five years have witnessed the freelancer market shoot up by 7%.
  • As much as 47% of the millennial population is freelancing, which is way higher than any other generation.
  • 80% of the individuals prefer working on remote assignments. Besides, 50% of all jobs in the US can be done remotely.
  • In 2022, independent professionals in the US earned $286 billion, around 10% higher compared to the previous year.

Now that the new legislation has significantly bridged the gap between the work status of freelancers and employers, the gig economy is likely to get a boost. Freelancers are also teaming up to form businesses, which is yet another trend that would dominate the US economy. AB5 has brought about this shift, and it holds tremendous promise to transform how freelancers and independent contractors work. 

Is it possible for Proposition 22 and AB 2257 to coexist?

Well, not everything can work in watertight compartments, and chances are high that both AB 2257 and Proposition 22 will coexist. Although AB 2257 will be applicable, the businesses for which it was formulated are no longer compelled to adhere to its key provisions.

With Proposition 22, delivery service providers and rideshare drivers at Delivery Network Company, Doordash, Lyft, and Uber can continue to work as independent contractors. They may choose not to be considered as employees.

Now, by exempting some businesses categorically, the Proposition guts the actual intent of AB5. However, the proposition has provided workers with the freedom to choose their work status. Freelancers who take on other types of tasks are likely to be reclassified unless these workers fulfill the exemption requirements under AB 2257.

How the plan backfired!

The clauses under AB5 will continue to evolve to suit the needs of freelancers and a larger gig economy. The original intention behind AB5 was positive as the bill tried to protect freelancers and independent professionals and provide them with equal or similar working stature as employees. The Californian government also tried to ensure that contractors and freelance business owners paid their taxes. This would bolster the state’s revenue.

However, after the formulation of Proposition 22, AB5 is doing exactly the opposite of what it was intended to do. Ultimately, this is hurting freelancers who carry the power and knowledge while working with companies. The bill has undergone several changes since its inception. It remains to be seen how comfortable freelancers are with the current state of affairs related to benefits, taxation, and job security. 

FAQ

Why are some freelancers reluctant to be considered as employees?

The nature of freelancing jobs comes with several perks, such as flexibility and independence. Unlike regular office jobs, freelancers need not work at stipulated office hours. This implies they are free to set their schedule throughout the day to boost their productivity.

Besides, freelancers are entitled to sign contracts with multiple vendors or clients simultaneously. However, when they get the ‘employee’ tag, they would lose this privilege. Working with one business rather than multiple companies puts their profession at risk, besides leading to loss of productivity. This explains why some freelancers are reluctant to be considered as employees.

Is AB5 disrupting the gig economy?

Yes, AB5 has been disrupting the gig economy significantly, but it’s too early to decide whether this disruption would benefit freelancers or turn out to be a problem. With Proposition 22, freelancers and gig workers can choose their work status and opt out of the ‘employee’ tag if necessary. Rather than making the norms a compulsion, the current state of the norms offers a good deal of flexibility to gig workers and freelancers.

How important are freelancers to businesses?

Many businesses, such as designing, digital marketing, affiliate marketing, blogging, content development, ridesharing, and marketing, find freelancers valuable and cost-effective resources. Working with freelancers does not require businesses to provide regular benefits like insurance. However, they can count on this pool of talent for cost-effective and high-quality services.

Can freelancers start their businesses?

Of course, hundreds of freelancers from different industries have already registered their businesses. You may decide to register your freelancing business as a sole entrepreneur or proprietorship. Make sure to stay abreast with the legalities and tax implications when you transform your side hustle or freelancing job into an established business.

Why are so many traditional workers switching to freelancing?

Freelancing brings you the privilege of choosing whom to work for and how much time to allocate to each client. Likewise, you get to decide your hourly rates, payment terms, and whether or not you would accept assignments. This flexibility, along with the benefits of working remotely, appeals to most workers. This explains why so many traditional workers are embracing freelancing careers.

 

Deanna Ritchie

Deanna Ritchie

Deanna Ritchie is a managing editor at Due. She has a degree in English Literature. She has written 2000+ articles on getting out of debt and mastering your finances. She has edited over 60,000 articles in her life. She has a passion for helping writers inspire others through their words. Deanna has also been an editor at Entrepreneur Magazine and ReadWrite.

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